Our logistics are a major trade barrier

An emerging economy such as India needs to expand international trade to sustain 7-8 per cent growth. At present, exports contribute only 16 per cent to India’s GDP — low compared to peers such as China (34 per cent), South Africa (27 per cent) and Indonesia (26 per cent). Further, increasing supply of a semi-skilled, young labour force demands manufacturing growth supported by exports that would generate employment opportunities.

Therefore, the implementation of sound trade facilitation policies for low trade and transaction costs is a prerequisite to attract investors to make in India and consider it their manufacturing hub. Given the recent push to sign the WTO Trade Facilitation Agreement, which is estimated to create 18 million jobs in developing countries, mostly in India, trade facilitation measures need to be put in place.

According to the latest Logistics Performance Index (LPI) by the World Bank, India lags when it comes to logistical facilitation of foreign trade, ranking 54 out of 160 countries compared to China (28) and South Africa (34).

LPI is a composite index that includes crucial indicators affecting trade and transaction costs such as customs, infrastructure, quality of logistics and timeliness. In this context, the recent report by the Comptroller Auditor General of India which was tabled in Parliament, on the performance audit (PA) of the trade facilitation measures initiated by the department of commerce and the department of revenue for the period 2010-11 to 2013-14, offers several observations and suggestions.

In recent years, there have been several new initiatives by the revenue department, the commerce department and the Central Board of Excise and Customs (CBEC) for enhancement of trade facilitation. These include measures such as e-filing documents through the Indian Custom Electronic Commerce Gateway (ICEGATE), introduction of 24x7 customs clearance facility and special categories of trading partners. The CAG notes that an increasing percentage of importers are accessing the ICEGATE portal to file bills of entry rather than service centres, which is a good thing.

However, the risk management system (RMS) does not meet the desired goals. RMS provides for the clearance of low risk consignments without assessment or physical checking. Although facilitation levels were enhanced in 2011 — up to 80 per cent, 70 per cent and 60 per cent for air cargo complexes, ports and inland container depots (ICDs) respectively — data from commissionerates reveals that the targeted proportion of bills to be facilitated via RMS has not been achieved. In four air commissionerates, only 59 per cent of bills were facilitated through RMS against the target of 80 per cent.

The audit also finds that the option of inspection of goods at factory premises provided by CBEC exporters has largely been underutilised. At present only about 37 per cent of the shipping bills undergo inspections at factory sites, leading to delays and associated costs, even though a single factory stuffing permission is sufficient for all customs locations.

In September 2012, the CBEC implemented 24x7 customs clearance facilities on a pilot basis at selected customs houses for certain categories of imports and exports. However, the scheme did not take off because of issues such as absence of representatives from inspecting agencies such as the Directorate of Plant Protection, Quarantine and Storage (DPPQS), the Food Safety and Standards Authority of India (FSSAI), theAssistant Drug Controller (ADC) and others, along with a lack of custom house clearing agents during night shifts, lack of enthusiasm on the part of traders for using facilities at night, and additional overhead manpower costs for various stakeholders.

Two programmes — theAccredited Client Programme (ACP) and the Authorised Economic Operator (AEO) — were introduced by the revenue department in 2005 and 2011 respectively to ease conditions for trade by granting special status to economic operators who met qualifying criteria that included amount of duty paid, volume of imports, clean compliance record and so on. These schemes, however, have not enthused the trading community, by and large. Only 14 entities across the country are covered under the AEO scheme, whereas the number of entities under the ACP scheme has come down by about 18 per cent in the last one year (2013-14).

The CAG points out that the introduction of the On Site Post Clearance Audit (OSPCA), which has more stringent requirements for ACP status holders compared to the Post Clearance Audit applicable to non-ACP operators, discourages new entities from joining the ACP programme and incumbents from renewing. As for the AEO scheme, despite the benefits in terms of simplified customs procedures, declarations and so on, the complex procedure for application and subsequent grant of authorisation has emerged as the deal-breaker.

The lack of last mile connectivity has adversely affected India's trade facilitation efforts. Projects facing delay include the Chennai-Ennore port connectivity project, the elevated four-lane link road from Chennai to Maduravoyal, and the Walayar checkpost, Kochi. Timely execution of the Sagar Mala project (to modernise Indian ports) will improve logistical efficiency, thereby reducing transaction costs. Other issues dogging trade logistics in India include lack of rail infrastructure to move containers to inland container depots (for reasons such as line congestion, limitations in loading of containers ), lack of coordination between various stakeholders for improvement in infrastructure at ports, and lack of feeder network at the international container transhipment terminal.

Delay in payment of duty by importers is a major problem at customs ports. The report says that on an average 48 per cent of bills were paid beyond a period of 24 hours at 12 commissionerates, with Mumbai JNPT and Kolkata going up to 65 per cent.

The delay is largely attributed to disagreement between importers and customs authorities on the quantum of duty to be paid. This could be attributed to interest, revision of duties in case of advance or prior bill of entry, reassessment of warehousing bill of entry into home consumption bill of entry, etc. The blame lies on both sides. While importers delay in furnishing replies to queries raised by the customs authorities with regard to classification, valuation, notifications and so on, the queries raised to importers are also piecemeal.

The CAG report attributes issues such as inspection delays, bill of entry, manual registration and authorisation for making trade facilitation difficult and increasing transaction costs. Efficient trade facilitation does not call for new policies and schemes; it requires a clear road map to implement existing policies and transparent frameworks within which these policies and schemes can function uniformly across all customs commissionerates. This will greatly enhance the ease of doing business in India.

The writer is an associate professor at the Institute of Economic Growth

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